Final answer:
Budgetary slack is intentional padding of budgeted amounts to create flexibility. Pros for employees: flexibility with spending and goal assurance. Cons for employees: reduced motivation and limited incentives. Pros for senior managers: safety net and negotiation room. Cons for senior managers: inaccurate budgeting and lack of accountability.
Step-by-step explanation:
Budgetary slack refers to the intentional padding or overestimation of budgeted amounts to create a cushion or flexibility within a budget. This can be done by inflating expense estimates or understating revenue projections.
The pros of building slack into the budget from the point of view of an employee are:
- It allows employees to have some flexibility in their spending, making it easier to manage unexpected expenses.
- Creates a buffer to ensure that goals are met, even if performance falls slightly short.
The cons from the point of view of an employee are:
- It may lead to reduced motivation and efficiency as employees know they can rely on the slack.
- Could limit the potential for performance-based bonuses or incentives.
The pros of building slack into the budget from the point of view of a senior manager are:
- Provides a safety net in case of unforeseen circumstances or emergencies.
- Offers more room for negotiation during budget discussions with higher-level executives or stakeholders.
The cons from the point of view of a senior manager are:
- May result in less accurate budgeting and forecasting, leading to potential financial inefficiencies.
- Could contribute to a culture of complacency and lack of accountability within the organization.